[ROYAL GROUP LOGO]
THIRD QUARTER REPORT
ENDED JUNE 30 2003
MESSAGE TO SHAREHOLDERS
Royal's third quarter financial results, simply put, are unacceptable. High
material costs and low capacity utilization throughout the Group have proved to
be difficult challenges in the sluggish economic environment we have encountered
in the first nine months of fiscal 2003. However, we continue to implement
strategic plans that we believe will provide us with improved financial
performance.
TURNAROUND OF WINDOW COVERINGS DIVISION
In our second quarter report to shareholders, we outlined our plans to restore
profitability in the Window Coverings Division. Recall that we are exiting
custom special order programs and related stock-size programs with certain U.S.
home improvement retailers that require a high degree of costly merchandising
and in-store sales support. We are refocusing our marketing efforts on the
dealer/fabricator channel of distribution, where we have an extensive customer
base, strong brand identity, an organization well suited to rapidly responding
to dealer/fabricator needs and a strong reception to our on-going product
innovations.
During the third quarter we initiated exit from undesirable programs, tempering
the desire to immediately exit with a desire to be responsible to our customers.
We expect to have fully exited these programs by the end of August. To assist in
mitigating our losses during the phase-out period, these retail customers have
agreed to some price increases.
The response from the dealer/fabricator network to our decision to refocus on
that channel has been quite positive. We have now placed updated catalogues and
sample kits in the hands of our 1400 dealer/fabricator customers, which include
many of our newer offerings, including our ColorWash(TM) vertical and horizontal
window blinds that look like fine cloth draperies, but have superior heat and
light resistance. As a result of these initiatives, we are regaining customer
confidence and have begun to enjoy more business with existing dealer/fabricator
customers and secured additional customers.
These initiatives are beginning to produce an encouraging financial impact. We
reduced our losses in the third quarter from those we recorded in the second,
excluding the additional charges related to the exiting programs. We were
particularly pleased to see less loss in June than we had been anticipating. The
window coverings division is on track to deliver break-even performance on a
monthly basis by the end of fiscal 2003.
RESPONDING TO RISING MATERIAL COSTS
During the third quarter, we had high cost PVC resin flowing through our
manufacturing plants. As most of you are aware, PVC resin costs are up by
approximately 25% since January. Our profit margins have suffered significant
compression due to these material cost increases. In response to rising material
costs, we have increased selling prices for custom profiles, exterior cladding,
pipe and window coverings, with most of these increases taking effect at various
points in the third fiscal quarter. These finished product price increases,
coupled with some recent easing of PVC costs, will help us to mitigate the
impact of higher material costs going forward.
RIGHT-SIZING INVENTORY AND PRODUCTION
In the third quarter, we incurred a $14 million inventory charge relating to
writing down excess inventory or higher priced inventories to current
replacement cost or net realizable value. This write-down resulted from the
extensive review of production and inventory levels as against the sales
achieved, in the quarter and that expected for the balance of the season.
During the third quarter, we began to curtail production at various facilities
in order to reduce inventory levels. With slower than expected sales
achievements during the third quarter, we were not able to draw inventories down
in absolute terms as compared to last year. Accordingly, we will further curtail
production on an increased basis during the fourth quarter. This action will
decrease our fixed cost absorption and negatively impact margins during the
fourth quarter, but will position us better for business going forward.
STRATEGIES TO OPTIMIZE CASH FLOW
We are also making progress with our capital expenditure curtailment program.
Through increased scrutiny and better use of under-utilized assets across the
Group, we are minimizing capital expenditures. We expect that we will be able to
again reduce capital expenditures in 2004, further generating increased free
cash flow. Inventory reductions are also resulting in increased cash flows, and
together, both initiatives are expected to offset any shortfall of cash from
operating activities.
INCREASING PENETRATION OF CORE MARKETS
We are pleased to report on some of our early successes with respect to our
cross-selling programs. During this past quarter, we made presentations to key
window fabricator customers regarding the other Royal products available for
their distribution. These complementary products include a "pro" line of
fencing, decking and railing, siding and decorative columns. Similarly, we have
introduced a "pro" line of railing and decorative columns to select distributors
of our vinyl siding products. We are now preparing these product bundling
programs for launch by these customers in 2004.
Rest assured that the entire management team is committed to the improvement of
the financial results and is implementing strategies that we believe will result
in enhanced shareholder value. We thank our employees, customers and
shareholders for their support, as we position Royal Group to realize its
potential.
/s/ Vic De Zen /s/ Douglas Dunsmuir
- ------------------------ -------------------------
Vic De Zen Douglas Dunsmuir
Chairman and C.E.O. President
August 26, 2003 August 26, 2003
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
JUNE 30/03 Sept. 30/02 June 30/02
----------- ----------- -----------
(UNAUDITED) (audited) (unaudited)
(restated, (restated,
note 2) note 2)
ASSETS
Current assets:
Accounts receivable $ 378,736 $ 390,332 $ 426,898
Inventories 502,623 495,710 480,037
Prepaid expenses 20,351 26,295 25,656
----------- ----------- -----------
901,710 912,337 932,591
Future income tax assets 26,650 8,824 31,218
Property, plant and equipment 1,542,935 1,637,049 1,694,196
Goodwill and other assets 261,959 275,757 274,379
----------- ----------- -----------
$ 2,733,254 $ 2,833,967 $ 2,932,384
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 468,260 $ 383,785 $ 471,828
Accounts payable and accrued liabilities 237,251 257,324 249,715
Term debt due within one year 24,830 103,754 102,646
----------- ----------- -----------
730,341 744,863 824,189
Term debt 399,234 447,290 463,080
Future income tax liabilities 141,007 126,891 152,058
Minority interest 14,790 18,249 17,208
Shareholders' equity:
Capital stock 632,711 632,697 632,316
Retained earnings 919,954 900,141 878,437
Currency translation adjustments (104,783) (36,164) (34,904)
----------- ----------- -----------
1,447,882 1,496,674 1,475,849
----------- ----------- -----------
$ 2,733,254 $ 2,833,967 $ 2,932,384
=========== =========== ===========
See accompanying notes to consolidated financial statements.
On behalf of the Board:
/s/ Vic De Zen /s/ Ron Goegan
- ------------------------ -------------------------
Chairman and Director Director
Vic De Zen Ron Goegan
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except per share amounts)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/03 June 30/02 JUNE 30/03 June 30/02
----------- ----------- ----------- -----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Net sales $ 525,024 $ 579,330 $ 1,358,619 $ 1,368,294
Cost of sales and operating expenses (484,725) (455,096) (1,202,883) (1,084,196)
----------- ----------- ----------- -----------
Operating margin 40,299 124,234 155,736 284,098
Amortization charges (32,164) (29,777) (96,437) (88,926)
Interest and financing charges (12,605) (13,048) (38,249) (39,469)
----------- ----------- ----------- -----------
(Loss) earnings before income taxes and minority
interest (4,470) 81,409 21,050 155,703
Income tax recovery (expense) (note 5) 2,752 (23,884) (1,350) (45,894)
----------- ----------- ----------- -----------
(Loss) earnings before minority interest (1,718) 57,525 19,700 109,809
Minority interest 73 (679) 113 (961)
----------- ----------- ----------- -----------
Net (loss) earnings $ (1,645) $ 56,846 $ 19,813 $ 108,848
=========== =========== =========== ===========
(Loss) earnings per share (note 4):
Basic $ (0.02) $ 0.61 $ 0.21 $ 1.18
Diluted $ (0.02) $ 0.60 $ 0.21 $ 1.16
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of Canadian dollars)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/03 June 30/02 JUNE 30/03 June 30/02
---------- ---------- ---------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Retained earnings, beginning of period $ 921,599 $ 826,303 $ 900,141 $ 775,229
Accounting policy change (note 2) -- (4,712) -- (5,640)
Net (loss) earnings (1,645) 56,846 19,813 108,848
--------- --------- --------- ---------
Retained earnings, end of period $ 919,954 $ 878,437 $ 919,954 $ 878,437
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/03 June 30/02 JUNE 30/03 June 30/02
---------- ----------- ----------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Cash provided by (used in):
Operating activities:
(Loss) earnings before minority interest $ (1,718) $ 57,525 $ 19,700 $ 109,809
Items not affecting cash 71,356 38,963 138,745 102,039
Increase in non-cash working capital requirements (2,219) (4,887) (81,301) (71,809)
--------- --------- --------- ---------
67,419 91,601 77,144 140,039
Financing activities:
(Decrease) increase in bank indebtedness (46,251) (78,119) 84,475 66,461
Repayment of term debt (243) (210) (79,994) (657)
Decrease in minority interest -- -- (3,964) --
Proceeds from issuance of shares under stock option plan -- 3,584 14 23,541
--------- --------- --------- ---------
(46,494) (74,745) 531 89,345
Investing activities:
Acquisition of property, plant and equipment, net (20,865) (37,740) (71,374) (110,578)
Acquisitions of other businesses -- -- (4,134) (149,250)
Proceeds from the sale of non-strategic assets -- 21,130 -- 30,939
Increase in other assets (60) (246) (2,167) (495)
--------- --------- --------- ---------
(20,925) (16,856) (77,675) (229,384)
--------- --------- --------- ---------
Change in cash, being cash, end of period $ -- $ -- $ -- $ --
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
1. CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles, and include
the accounts of Royal Group Technologies Limited, its subsidiaries and its
proportionate share of its joint ventures.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at June 30, 2003
and the results of operations and cash flows for the three month and nine month
periods ended June 30, 2003.
Currently the Company operates substantially in the North American
renovation, remodeling and construction markets, which are seasonal. The
Company's annual free cash flow is achieved substantially in the last two
quarters of the fiscal year.
2. CHANGE IN ACCOUNTING POLICIES
Except as outlined below, the Company's accounting principles remain unchanged
from the most recent fiscal year ended September 30, 2002. For details, please
refer to note 1 on page 30 of the Company's 2002 Annual Report.
The Canadian Institute of Chartered Accountants (CICA) Handbook Section
1650 with respect to foreign currency exchange gains and losses was adopted for
fiscal 2003. The standard requires separate disclosure of exchange gains and
losses on the income statement and the elimination of deferral and amortization
of unrealized gains and losses on non-current foreign currency denominated
monetary assets and liabilities, except to the extent that they meet specified
criteria for hedge accounting. This change was applied retroactively with the
result that net earnings increased by $464 in the quarter ending June 30, 2002
and by $1,392 ($0.01 per share) in the nine month period ending June 30, 2002.
The deferred foreign exchange losses on the balance sheet have been reclassified
from term debt to retained earnings.
Effective October 1, 2002, the Company adopted the new recommendations of
the CICA with respect to the accounting for stock-based compensation and other
stock-based payments. The new recommendations are applied prospectively to all
stock-based payments to non-employees, and to employee awards that are direct
awards of stock, call for settlement in cash or other assets, or are stock
appreciation rights that call for settlement by the issuance of equity
instruments, granted on or after October 1, 2002. CICA Handbook Section 3870,
requires additional disclosures for options granted to employees, including
disclosure of pro forma earnings and pro forma earnings per share as if the fair
value based accounting method had been used to account for employee stock
options issued on or after October 1, 2002. The Company did not issue any stock
options in the period from October 1, 2002 to June 30, 2003.
Certain September 30, 2002 and June 30, 2002 figures have been restated to
conform with the financial statement presentation adopted in fiscal 2003.
3. SEGMENT REPORTING INFORMATION
Products Support
Segment Segment Intra-Group Consolidated
----------- ----------- ----------- ------------
For the quarter ended June 30, 2003
Net sales $ 528,791 $ 153,940 $ (157,707) $ 525,024
Operating margin 6,819 33,480 40,299
Amortization charges 22,833 9,331 32,164
Acquisition of property, plant and equipment 16,162 4,703 20,865
Property, plant and equipment 770,185 772,750 1,542,935
Total assets 1,707,144 1,026,110 2,733,254
For the 9 months ended June 30, 2003
Net sales $ 1,343,966 $ 428,780 $ (414,127) $ 1,358,619
Operating margin 59,173 96,563 155,736
Amortization charges 69,411 27,026 96,437
Acquisition of property, plant and equipment 47,464 23,910 71,374
Property, plant and equipment 770,185 772,750 1,542,935
Total assets 1,707,144 1,026,110 2,733,254
For the quarter ended June 30, 2002
Net sales $ 560,760 $ 151,270 $ (132,700) $ 579,330
Operating margin 79,625 44,609 124,234
Amortization charges 21,052 8,725 29,777
Acquisition of property, plant and equipment 30,215 7,525 37,740
Property, plant and equipment 832,098 862,098 1,694,196
Total assets 1,752,151 1,180,233 2,932,384
For the 9 months ended June 30, 2002
Net sales $ 1,328,014 $ 436,202 $ (395,922) $ 1,368,294
Operating margin 153,637 130,461 284,098
Amortization charges 62,616 26,310 88,926
Acquisition of property, plant and equipment 76,720 33,858 110,578
Property, plant and equipment 832,098 862,098 1,694,196
Total assets 1,752,151 1,180,233 2,932,384
Net sales by geographic region for the 3 months ending June 30, 2003 were 57% to
the U.S. (2002 - 62%), 37% to Canada (2002 - 32%) and 6% to foreign markets
(2002 - 6%) and for the 9 months ended June 30, 2003 were 61% to the U.S. (2002
- - 63%), 32% to Canada (2002 - 30%) and 7% to foreign markets (2002 - 7%).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
4. (LOSS) EARNINGS PER SHARE
Basic and diluted (loss) earnings per share have been calculated using the
weighted average and maximum dilutive number of shares outstanding for the three
month period of 93,220,617 (2002 - 93,032,997) and 93,248,648 (2002 -
94,588,206) and for the nine month period of 93,219,717 (2002 - 92,382,232) and
93,323,219 (2002 - 93,658,049) respectively. As at June 30, 2003, the Company
had outstanding 15,935,444 multiple voting shares, 77,285,173 subordinate voting
shares, and 9,064,217 options to acquire subordinate voting shares under the
Company's employee stock option plan.
5. INCOME TAXES
During the quarter, the Company recorded an income tax recovery on its pre-tax
loss reported under GAAP, as a result of permanent differences between income
for accounting purposes including the elimination of intercompany transactions,
and the amounts upon which tax is assessable.
6. SUBSEQUENT EVENT
The Company expects to record a pre-tax charge of approximately $8.5 million in
the fourth quarter, relating to identified severance and lease terminations, and
business exit costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED JUNE 30, 2003, AS COMPARED TO THE QUARTER ENDED JUNE 30, 2002
Consolidated net sales for the third quarter declined by 9% to $525 million,
compared to $579 million the previous year. Sales were negatively affected by
the harsh weather experienced in our major markets and the overall weak consumer
confidence as well as the impact of foreign exchange. Products Segment sales for
the quarter were $529 million, down 6% compared to $561 million in the prior
year. Home Improvement Products sales decreased by 5% to $281 million from $296
million. Custom Profiles sales declined by 6% and Exterior Cladding sales
declined by 1%. Adjusting for foreign exchange, Custom Profile sales were
essentially flat year over year while Exterior Cladding sales increased over
last year. Consumer Products sales were $157 million compared to $163 million, a
4% decline. Window Coverings sales decreased 10%, Housewares & Furniture sales
decreased 3%, while Outdoor Products sales increased 4%. Adjusting for the
foreign exchange impact, Window Coverings sales still showed a decline, due to
the decision to terminate attempts to expand supply of custom special order
window coverings to certain U.S. home improvement retailers. Outdoor Products
sales increased in spite of unfavorable weather conditions in the northeast.
Housewares & Furniture sales were down due to soft consumer spending and the
weather which impacted the sales of patio furniture. Construction Product sales
decreased to $66 million from $76 million. The decline of 12% in the third
quarter was due primarily to sales of Pipe & Fittings, which was related to
weather conditions delaying construction. Royal Building Systems and Foreign
Operations sales decreased 8%. After taking into account the foreign exchange
impact, sales for this division were essentially flat compared to last year.
Support Segment sales for the quarter increased 2% to $154 million from
$151 million the previous year. Sales in the Support Segment are largely
eliminated on consolidation due to the nature of the Group's vertical
integration. Sales of Materials grew 8% reflecting higher raw materials cost per
pound, slightly offset by lower volumes sold. Sales in Machinery & Tooling
decreased 16% to $13 million, due to slow sales activity in our Italian
equipment manufacturers. Sales in the Services category decreased 15% to $22
million over the prior year due to the windup and sale of certain plant
construction and related businesses throughout fiscal 2002. Sales in the third
quarter were consistent with each of the first two quarters of the current
fiscal year.
During the quarter, sales to non-Canadian customers including foreign based
sales and exports from Canadian operations decreased to 63% of total sales,
lower than the 68% for the prior year, reflecting the relative strengths of the
Canadian economy and the Canadian dollar.
Operating margin or EBITDA (earnings before interest and financing charges,
taxes, depreciation and amortization charges and minority interest) is a widely
used term in the financial markets but is not a recognized measure under
Canadian generally accepted accounting principles. Management believes that
EBITDA is a valuable supplemental measure as it provides investors with an
indication of cash available for distribution prior to debt service, capital
expenditures, income taxes and minority interest. It should also be noted that
the Group's method of calculating EBITDA may differ from other companies and
therefore may not be comparable to EBITDA used by other companies. The Group's
overall EBITDA for the quarter ended June 30, 2003 decreased by 68% to $40
million compared to $124 million last year. EBITDA as a percentage of sales was
7.7% compared to 21.4% last year. EBITDA was negatively impacted by: increases
in material costs; lower absorption of fixed costs due to declines in
production; a $29.0 million charge to cost of sales and selling expenses
relating to the write-down of tangible assets, primarily being inventories,
promotional material and accounts receivable, in connection with the decision to
exit from certain retail window coverings programs in the U.S.; a $16.5 million
charge to cost of sales and selling expenses relating to inventory and accounts
receivable provisions; offset partially by a $3.3 million recovery of bonus
accruals relating to the executive compensation review of the CEO and President.
Excluding the impact of the retail program exit costs and the additional
inventory and receivable provisions, our EBITDA margins were 15.7% compared to
21.4% last year.
Raw material costs increased to 55.3% of sales from 42.2% last year.
Excluding the previously mentioned charges aggregating to $45.5 million,
material costs were 47.7% of sales. This is primarily due to higher material
costs working their way through cost of sales. The $14.3 million inventory
charge relates to writing down excess inventory or higher priced inventories to
current replacement cost or net realizable value. This write-down resulted from
the extensive review of production and inventory levels as against the sales
activity, in the quarter and that expected for the
MANAGEMENT'S DISCUSSION AND ANALYSIS
balance of the season. Labor costs decreased to 13.2% of sales as compared to
13.4% last year as a result of the reduction in employee requirements typical in
our peak season. Other manufacturing costs increased as a percentage of sales to
10.2% from 9.0% last year as production volumes were not sufficient to absorb
fixed costs. It is expected that other manufacturing costs as a percentage of
sales will remain high, as the focus will be to reduce finished goods inventory
levels over the remainder of the fiscal year by way of production curtailments.
Partially offsetting this will be management's on-going efforts to review
existing capacities, curtail new capital expenditures and consolidate certain of
Royal's operations with its ultimate goal to increase the overall Group capacity
utilization rate. Selling and distribution costs increased to 14.6% of sales
compared to 13.8% last year. Excluding the previously mentioned selling charges,
these costs decreased to 13.5% of sales. General and administration costs as a
percent of sales decreased to 5.1% from 5.3%. However, excluding the recovery of
executive bonuses as determined by the recent compensation committee review,
these costs increased to 5.8% of sales.
Products Segment EBITDA, for the quarter ended June 30, 2003 declined to $7
million from $80 million. EBITDA as a percentage of sales decreased to 1.3% from
14.2% last year. Excluding the previously mentioned charges, EBITDA for the
Products Segment would be $51 million or 9.5% of sales. The decrease from the
prior year reflects both increased material costs not offset by selling price
increases, and unabsorbed capacity costs.
Support Segment EBITDA for the quarter ended June 30, 2003, decreased to
$33 million from $44 million. EBITDA as a percentage of sales decreased to 21.8%
from 29.5% due primarily to higher raw material costs. Excluding the previously
mentioned charges, EBITDA for the Support Segment would be $35 million or 23.1%
of sales.
Amortization expense for the quarter increased slightly to $32 million as
compared to last year's $30 million. In the Products Segment, amortization was
4.3% of sales, up from 3.8% last year. In the Support Segment, amortization
expense was 6.1% of sales, up from 5.8% last year. Interest and financing
charges of $12.6 million are consistent with last year's $13.0 million. This
reflects the repayment of higher fixed rate term debt earlier in the year by
drawing on lower rate bank debt, offset by the effects of exiting our commercial
paper program. Effective October 1, 2002, the Group adopted Section 1650, of the
CICA Handbook regarding foreign currency translation (see note 2 to the
accompanying financial statements). The change in accounting policy resulted in
no deferred foreign exchange losses being amortized this quarter, whereas for
the quarter ended June 30, 2002, net earnings were retroactively increased by
$0.5 million.
During the quarter, the Group recorded a net income tax recovery of $2.8
million as a result of permanent differences between income recorded for
accounting purposes and the amounts upon which tax is assessable (see note 5 to
the accompanying financial statements). The Group's overall effective tax rate
for the last quarter of fiscal 2003 is expected to be between 27% and 28%.
For the quarter ended June 30, 2003, the Company reported a net loss of
$1.6 million or 0.3% of sales compared to net earnings of $57 million or 9.8% of
sales last year. On a diluted basis, the loss per share for the quarter was
$0.02 compared to earnings per share of $0.60 in the prior year. Excluding the
impact of the $45.5 million charges relating to Window Coverings and additional
inventory and receivable provisions, the recovery of the executive bonuses of
$3.3 million and the income tax recovery, earnings per share would be $0.30 per
share. The average number of diluted shares outstanding for the quarter was 93.2
million.
LIQUIDITY AND CAPITAL RESOURCES
Free cash flow (cash flow from operations less change in non-cash working
capital, less acquisition of property, plant and equipment) during the quarter
was a source of $46.6 million, compared to the prior year's cash flow source of
$53.9 million. During the quarter much of the operational shortfall in cash flow
was offset by a reduction in capital expenditures. Working capital, excluding
cash and funded debts, was $664 million at June 30, 2003 compared to $683
million at June 30, 2002. This year's working capital has been reduced due to
lower accounts receivable offset by the increase in finished goods inventory.
Due to the continuous efforts and focus on monitoring collections, days
receivable outstanding has improved to 60 days as compared to 63 days last year.
Days inventory outstanding at June 30, 2003, decreased to 138 days from last
year's 148 days. We continue to focus on reducing finished goods inventory
levels, particularly in Pipe & Fittings, Housewares & Furniture and Outdoor
Products, which have been most affected by weather and consumer confidence and
spending. Third quarter capital expenditures decreased to $21 million compared
to $25 million in the preceding quarter and $38 million in the prior year. This
quarter's capital expenditures continued to be primarily for tooling and
equipment to be used in the Products Segment, most notably for Home Improvement
Products, and additional capacities in the Materials division. Capital
expenditures not yet committed have been suspended, with each request requiring
re-approval by the CEO or the President.
At June 30, 2003, the net bank indebtedness was $468 million. The Group's
$650 million bank credit facility was effectively 72% utilized. This is an
improvement from last year when $472 million was utilized, particularly given
the re-payments of $104 million on the term debt since last year. The funded
debt to total capitalization ratio was 37.9%, compared to 39.0% at March 31,
2003 and 40.8% at June 30, 2002. The Group expects continued significant
reductions to short term debt through application of free cash flow. Free cash
flow improvements are intended to be achieved through the reduction of finished
goods inventory, the curtailment of capital expenditures and potentially from
proceeds from the sale of non-strategic assets. The bank credit facility was
renewed in April 2003 for $650 million, with a further decline to $500 million
committed for the end of August 2003. Management believes that the Group's
anticipated operating cash flow and available credit under its existing
financing arrangements are sufficient to meet its working capital and capital
spending requirements, as well as debt service requirements, including the
seasonal natures thereof.
CORPORATE DIRECTORY
CORPORATE OFFICE:
Royal Group Technologies Limited
1 Royal Gate Blvd.,
Woodbridge, Ontario
Canada L4L 8Z7
Telephone: (905) 264-0701
Facsimile: (905) 264-0702
Web site: www.royalgrouptech.com
SHARES LISTED ("RYG"):
Toronto Stock Exchange,
New York Stock Exchange
INDEX LISTINGS
S&P/TSX60 Index
S&P/TSX Composite Index
TRANSFER AGENTS AND REGISTRARS:
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Tel: 1-800-663-9097 or (416) 981-9633
Facsimile: (416) 981-9507
E-mail: caregistryinfo@computershare.com
Co-Transfer Agent (U.S.A.)
Computershare Trust Company, Inc.
12039 W. Alameda Parkway, Site 2-2
Lakewood, CO 80228
Tel: (303) 956-5400
Fax: (303) 986-2444
SHAREHOLDER INQUIRIES
Responses to shareholder inquiries as well as information published by the
Company for its shareholders and others, including annual reports, quarterly
reports and annual information forms may be obtained from:
Investor Relations
Royal Group Technologies Limited
1 Royal Gate Blvd.,
Woodbridge, Ontario L4L 8Z7
Telephone: (905) 264-0701
Facsimile: (905) 264-0702
E-mail: info@royalgrouptech.com
Web site: www.royalgrouptech.com
TRADING DATA
High Low Close Volume
(TSX) (TSX) (TSX) (in 000's)
TSX+NYSE
----- ----- ----- ----------
Fiscal 2002
Q1 29.49 21.90 29.38 17,216
Q2 32.40 28.05 30.15 14,460
Q3 32.20 28.67 31.48 16,953
Q4 31.97 13.06 13.70 25,607
Fiscal 2003
Q1 17.50 13.02 15.21 19,095
Q2 16.79 6.57 6.85 30,163
Q3 10.69 6.60 9.63 33,877
DEBT RATINGS
Rating Agency Medium Term Notes
- ------------- -----------------
DBRS BBB (high)
S&P BBB
FORWARD LOOKING STATEMENTS:
The information in this document contains certain forward-looking statements
with respect to Royal Group Technologies Limited, its subsidiaries and
affiliates. These statements are often, but not always made through the use of
words or phrases such as "expects", "should continue", "believes",
"anticipates", "estimated" and "intends" or similar formulations. By their
nature, these forward-looking statements involve known and unknown risks,
uncertainties and other factors affecting Royal specifically or its industry
generally that could cause actual performance and financial results to differ
materially from those contemplated by the forward-looking statements. These
risks and uncertainties include fluctuations in the level of renovation,
remodeling and construction activity, changes in product costs and pricing, an
inability to achieve or delays in achieving savings related to the cost
reductions, or revenues related to sales price increases, consolidation and
restructuring programs, changes in product mix, the growth rate of the markets
into which Royal's products are sold, market acceptance and demand for Royal's
products, changes in availability or prices for raw materials, pricing pressures
resulting from competition, difficulty in developing and introducing new
products, failure to penetrate new markets effectively (particularly markets in
developing countries), the effect on foreign operations of currency
fluctuations, tariffs, nationalization, exchange controls, limitations on
foreign investment in local business and other political, economic and
regulatory risks, difficulty in preserving proprietary technology, changes in
environmental regulations, currency risk exposure and other risks described from
time to time in publicly filed disclosure documents and securities commission
reports of Royal Group Technologies Limited and its subsidiaries and affiliates.
In view of these uncertainties we caution readers not to place undue reliance on
these forward-looking statements. Statements made in this document are made as
of August 26, 2003 and Royal disclaims any intention or obligation to update or
revise any statements made herein, whether as a result of new information,
future events or otherwise.
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